Definition of a Recurring Payment - What is a recurring payment?

A recurring payment is an amount of money that is taken on a regular basis more than once. Usually this process is automated so the customer doesn’t need to give the bank instructions manually. This can be on a set cycle with different intervals. For example: monthly would be a payment taken once a month, or quarterly would be a payment that is taken once every 3 months on a specific timing cadence.

Another word for this is a subscription. Subscription billing is becoming more and more popular as more and more subscription services are appearing, more on that later…

Recurring billing is notoriously complex from a technical stand point and a business stand point.

Let’s explore recurring billing and the ways in which this can be achieved by a business and what the best ways of implementing and processing a recurring payment from they customers can be for their subscription models.

How Are Recurring Payments Processed?

Recurring payments are usually charges that are taken from your credit card or debit card. This is done using a payment gateway, which we will cover later in this article. The instruction is issued programatically to take a payment at a specific date or time on a recurring basis.

However recurring payments can also be processed by other direct transfer methods from your bank account outside of the card networks depending on what country you are in. Lets go into the main ones we’re familiar with:

United States

In the United States there are 2 main methods for direct bank recurring payments.

ACH

ACH stands for “Automated Clearing House”. In short this is popular method used to programatically process bank transfer payments from a bank account to another one. The customer gives one time authorisation to the business by providing their bank details and permission, then the business can process payments to their own account from the customers bank account.

Wire Transfer

This is less common as it requires the customer to give the specific payment instructions to the bank each time, this isn’t automated, so businesses tend to not prefer this option. The customer would give their bank the details and amount they are wanting to transfer and the bank account details of where they want the money to go. The customer can do this by logging in to their online banking or going into a branch of their bank.

United Kingdom

In the United Kingdom there are 2 main methods aside from card payments for automated recurring payments direct from the bank account, and one method which is used for manual instruction.

Direct Debit

This is similar or the equivalent to the US’ ACH method. It can be done programatically and the company collects authorisation on behalf of the customer and then issues recurring payments on their behalf from one authorisation to the business with their own bank account details.

Standing Order

This is basically an instruction to the bank to make a repeat bank transfer (see below) which is the next one we will cover. This has to be put in place by the customer themselves direct with the bank, it cannot be done on behalf of the customer by a business.

Bank Transfer

This is just the same as a wire transfer in the US (see above), it’s completely manual, so it wouldn’t be convenient for a recurring payment. The customer makes a one time payment from their bank account . The customer issues the instructions to their bank (by logging in or in their bank) by providing the other bank accounts details.

Preferred Recurring Billing Method: Cards

In general recurring card payments are the most accessible and most understood by consumers. Consumers are used to providing their card details at checkouts online and the APIs available like Stripe for example, are easier than ever to integrate with if you understand programming…

However, there are draw backs: there are some failure points. Card payments can fail due to a number of reasons:

Insufficient funds

Expired cards

Fraud protection

And more

Also customers can issue chargebacks very easily with their banks which results in “friendly fraud” which can be extremely damaging to a business as the business has little power over this. The customer keeps the product/service and the business pays a fine. Some businesses have actually gone out of business due to this. The banks favour the consumer too much in this case.

The better more reliable alternative for recurring billing would be to use ACH or Direct Debit.

However, this comes with it’s own drawbacks…

I’s complex to setup and customers feel less comfortable with this and it adds friction due to the process being more complex. This results in lower conversion rates, this is why card payments are the most popular.

An Alternative: PayPal (NOT Recommended)

Most of you are familiar with the “digital wallet” and payment processor PayPal, who became known for making subscription billing possible back in the day.

However, PayPal’s APIs are notoriously complex, and the same issue still applies with them acting like a bank and making friendly fraud possible, they protect consumers more than businesses - which makes sense as a marketing technique as consumers feel safe so join and then the business follow. Chicken and the egg at it’s finest.

An alternative to PayPal is simply to use card (credit and debit) payments for recurring billing, here at Subbly, we recommend Stripe.

Payment Gateways That Support Recurring Billing

There are A LOT of payment gateways out there. Generally speaking payment gateways integrate with the card networks, like visa and MasterCard for example and issue instructions to them. They handle the security and handling of card details. But lets look at some popular ones that support recurring payment processing.

Stripe

These guys have come so far. I remember seeing them when they started out and thinking “they get it”.

They’ve made payment gateways and merchant accounts simple, and they offered subscription from the start, which was perfect for SaaS businesses.

They’ve become the gold standard in the world of payment processing and we can’t recommend them enough.

Braintree

An alternative to Stripe is Braintree. They have decent APIs and are competitively priced.

Braintree were bought by PayPal (which is actually a negative), however this means they’ve somewhat simplified integrating with PayPal’s API’s a bit, but it certainly still not the most straight forward and comes with limitations.

Subscription Billing & Recurring Billing Platforms

Ok so directly integrating with a recurring billing and recurring payment gateway is complex, as you need your own development skills (coding). I

Integrating with ACH or Direct Debit is complex.

So what options are out there to allow a business to accept recurring payments and add a subscription business model or even setup a subscription business?

Well there are a few options:

Wordpress + WooCommerce + WooCommerce Subscriptions

This is good if you have some technical abilities. It’s great if you want a lot of control. But it doesn’t scale so well in our experience which could be a road block later.

It is the most affordable option out of the shared solutions.

Shopify + A Recurring Billing Plugin

An alternative to Wordpress + WooCommerce Subscriptions is Shopify.

This is a bit better, Shopify is a solid platform, their support is great and their ecosystem is wicked. But having 2 moving parts to take a recurring payment from your customer is just unnecessary overhead (it’s a little more costly) and cognitive overload when you out grow this solution or if you want to move later.

Subbly

An alternative to Re:Charge (the Shopify plugin) and an alternative to Wordpress + WooCommerce + WooCommerce Subscriptions is Subbly.

We spent 4 years developing Subbly to solve all of the above issues. Simple as that. An all-in-one solution that makes it easy to take recurring payments and setup a recurring billing based subscription business like a subscription box or similar.

It has all you need and our customer support is really on point.

Of course I am biased, but don’t take my word for it, we have a 14 day free trial which you can use.

As mentioned above we integrate with Stripe, and our checkout is gorgeous and has a high conversion rate - one of our main focuses is generating our merchants revenue. Our goal is to reduce friction and make your life as a merchant much simpler to run your subscription business.